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Wednesday, September 17, 2008

Russia: "How does our Flank look??"

Protect your flank.

Such a simple concept in military history, but apparantly Russia has not heeded the warnings outlined by just about every significant general in current and previous history. Liddell-Hart, Clausewitz, Belisarius, Napolean, Alexander, etc...all of them regaled the would-be commander to always protect one's flank.

But, technology and history create new vectors. Be it airforces, submerged boats, psychological warfare, and weapons of mass destruction. One must understand that there are new vectors attached to modern conflict.

So I am going to talk about Russia.

Part of this discussion is in regards to the new climate of economic conflict. Territory is no longer the means of production and the source of power. We reside in a time where countless interactive relationships produce value and are powered largely by oil. HOWEVER, the most important cog in this relationship is the de-coupling of CURRENCIES from COMMODITIES. In other words, one receives a currency in exchange for oil. The currency must be employed to purchase other assets. Since oil is priced in U.S. dollars, this provides an IMMENSE benefit to U.S. foreign policy.

Now, in this inter-related world, more abstract economic factors often have determinitive effects on the physical world. Put another way, influence and power are not about boots on the ground. This development dove-tails nicely with how Futures prices often determine the movements of underlying prices. Economic effects, be they trade agreements, tarriffs, etc., have a tremendous effect on other countries provided they adhere to the same rule set as we do.

The capital markets structure of the world is largely dominated by the United States. Now, Russia is learning about a new Vector - the ability of the capital markets to influence real wealth and indirectly effect foreign policy.

Sept. 17 (Bloomberg) -- Russian markets stopped trading for a second day after emergency funding measures by the government failed to halt the biggest stock rout since the country's debt default and currency devaluation a decade ago.

The ruble-denominated Micex Stock Exchange suspended trading indefinitely at 12:10 p.m. after its index erased a 7.6 percent gain and plunged as much as 10 percent within an hour. The benchmark fell 17 percent yesterday, the biggest drop since Bloomberg started tracking the gauge in May 2001. The dollar- denominated RTS halted trading after similar declines.

The government yesterday injected $20 billion into the interbank lending market via central bank and Finance Ministry auctions in a bid to contain soaring borrowing rates as credit dried up in the wake of the Lehman Brothers Holdings Inc. bankruptcy. The one-day MosPrime overnight rate, a gauge for monitoring liquidity demand, leapt 25 basis points to a record 11.08 percent today.

The Finance Ministry attempted to stop the selloff by offering 1.13 trillion rubles ($44 billion) of budget funds to the country's three biggest banks, OAO Sberbank, VTB Group and OAO Gazprombank, for at least three months. That measure came as KIT Finance, a Russian brokerage, said it's in talks to find a buyer after failing to meet some financial obligations related to repurchase agreements.